Tata Capital share price target at Rs 360: What JM says on peers HDB Financial, others

JM Financial has initiated coverage on Tata Capital Ltd with an ‘Add’ rating and a target price of Rs 360, valuing the company at 2.9x FY27E price to book value (P/BV). Established in 2007, Tata Capital is a leading diversified non-banking financial company (NBFC) backed by the Tata Group, with around 80 per cent of its loan book in secured segments. Retail finance forms the bulk of its lending at 61 per cent of total loans.

Tata Capital delivered a strong AUM CAGR of 31 per cent during FY22-24, with average RoA/RoE of 2.3 per cent/18 per cent in FY23/24. However, the merger with Tata Motors Finance (TMFL) impacted FY25 performance, moderating AUM YoY growth to 17 per cent and RoA/RoE to 1.6 per cent/13 per cent. JM Financial expects improvement ahead, projecting AUM/PAT CAGR of 20 per cent/34 per cent over FY25-27, with average RoA/RoE of 1.9 per cent/13 per cent during FY26/27.

Tata Capital offers 25 lending products across retail (61 per cent), SME (26 per cent), and corporate loans (13 per cent). With a AAA/Stable credit rating, it enjoys low-cost fund access. NIMs are slightly lower than peers (~5–5.5 per cent) due to the high share of secured loans and bank competition, translating into RoA of 2.1–2.5 per cent in FY23/FY24.

The merger with Tata Motors Finance added operational complexity and temporarily depressed profitability, with FY25 RoA falling to 1.6 per cent. JM Financial noted that Tata Capital plans to expand its non-captive lending book, which should gradually improve the merged Tata Motors Finance book’s performance. Near-term credit costs are expected to remain elevated, especially in PL/BL/MSME/MFI segments, but are projected to decline from H2FY26, supporting RoA expansion.

Post-merger, Tata Capital expanded its branch network by 353 branches, with a total of 1,516 branches as of 1QFY26, up from 267 in FY22. This footprint expansion is expected to accelerate cross-selling opportunities, improve operating leverage, and reduce the cost-to-income ratio from 42 per cent in FY25 to 39 per cent by FY27E.

At the IPO upper price band of Rs 326, Tata Capital’s implied valuation is 2.7 times FY27E P/BV. JM Financial believes Tata Capital should trade between peers CIFC (3.7x) and HDB Financial (2.5x), and assigns a target multiple of 2.9 times FY27E BVPS, reflecting a 10–12 per cent premium/discount to its closest peers.

"We believe that the current multiple for Tata Capital offers limited upside, considering its likely AUM CAGR and average RoE over FY25-27F, which is in-line or lower than CIFC’s over the same period. HDB Financial should deliver AUM CAGR/average RoE of 13 per cent/15 per cent over FY25-27E. Therefore, we believe that Tata Capital should trade at 10-12 per cent premium/discount to HDB Financial/CIFC. Hence, we value Tata Capital at 2.9x FY27E P/BV entailing a target of Rs 360 (10 per cent upside)," it said.

Downside risks include an economic slowdown, slower AUM growth, delayed NIM expansion, higher credit costs, and regulatory risks.